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A deal to allow the Office of Management and Budget to review tax regulations prior to publication is unlikely to cause widespread slowdowns in implementing the new tax law, current and former government officials said.

The April 11 agreement with the Treasury Department, which will allow OMB’s Office of Information and Regulatory Affairs to approve major tax rules, follows months of negotiations between the two groups about who will have the final say in the regulations implementing the 2017 tax act (Pub. L. No. 115-97), Republicans’ major legislative achievement so far during President Donald Trump’s administration.

The agreement grants OIRA the power to review tax rules for 45 days before publication. For certain rules implementing the new tax law, the Treasury Department can designate rules to be fast-tracked for a 10-day review, as long as OIRA consents. The change is a reversal of a 35-year-old agreement that designated very few tax regulations for additional scrutiny.

The agreement “strikes the right balance between ensuring appropriate analysis and coherence in IRS rules, and accommodating the tight time frames under which tax regulations must be issued,” Susan Dudley, director of the George Washington University Regulatory Studies Center and OIRA’s administrator from 2007 to 2009 under President George W. Bush, told Bloomberg Tax in an email.

It’s difficult to predict how it will go until the review process is underway, said Mark Mazur, a former assistant secretary for tax policy at Treasury and the current director of the Urban-Brookings Tax Policy Center. “Whatever happens in practice will be much more important than the words on a document.”

Although the exact number of rules to be flagged for review isn’t yet known, Brent McIntosh, general counsel at Treasury, told reporters it will likely be in line with the fraction of regulations that go through an OIRA review at other federal agencies, which is typically less than 10 percent.

‘Value’ Added

Neomi Rao, the OIRA administrator, said at an April 12 Senate Homeland Security and Governmental Affairs regulatory subcommittee hearing that the process will allow OIRA to “add value” and ensure the regulations are “going in the right direction.”

McIntosh said at the hearing, “We do not believe it will cause undue delays.”

In the lead-up to the deal, announced April 12, former Treasury officials expressed concerns that giving OMB greater authority to review tax regulations could slow the process to issue regulations and could inject more political bias into the regulatory process because OMB is part of the Executive Office of the President. Others have said the additional layer of review could create a back door for lobbyists to appeal to OMB, rather than the Internal Revenue Service and Treasury.

A source familiar with the closed-door discussions that took place in the last month compared Treasury’s powers to a balloon with too much air in it. Now, some air has been let out, the person said.

Regulations implementing the pass-through deduction under tax code Section 199A, bonus depreciation, the interest expense deduction limitation under Section 163(j), and the rules for global intangible low-taxed income (GILTI) are all projects that could hit the triggers requiring OMB review, McIntosh said. He added that Treasury and the IRS put out “pure boring tax rules” that don’t impose costs on taxpayers and therefore shouldn’t be subject to additional scrutiny.

Rao said she believes that OIRA will be able to give Treasury a decision about whether these rules qualify for the 10-day expedited review within a couple days of a request being sent.

Unlike the 35-year-old agreement, the new memorandum ends the distinction between interpretive and legislative regulations, said Eric Solomon, a principal in Ernst & Young LLP’s National Tax Department in Washington and a former Treasury assistant secretary for tax policy.

Under the 1983 agreement, the argument for exempting the majority of tax regulations from OIRA’s review process and cost-benefit analysis partially stemmed from the view that tax rules simply interpret the laws that Congress enacts, and therefore any costs associated with them originate from the statute itself.

Solomon said there are some areas of the new memorandum that seem a bit fuzzy, such as the scope of the phrase “novel legal or policy issues.”

“As OMB and Treasury move forward to implement this, this will presumably become clearer,” Solomon said. Until then, it’s unclear what OMB’s overall role in the regulatory process will be and how much say the office will have over substantive, technical tax issues, he said.

‘Sad Day’

Mazur said those are legitimate concerns, but that it depends on how the new agreement is implemented in practice.

“It’s kind of a sad day for Treasury just from a bureaucratic, turf war standpoint,” Mazur said. The old agreement has been in place since the Reagan administration, he said.

One positive aspect of the new agreement is that the bullet point that talks about an economic effect of $100 million or more includes the phrase “non-revenue effect,” Mazur said. This means that the cost requirement pertains to the burden of compliance or the cost of planning, rather than the revenue raised by the tax provision, he said.

“That’s a big thing because it pretty much means that routine things that are already accounted for in the statute don’t trip this requirement. That’s a big plus for Treasury.”

Under the new memorandum, Treasury staff is required to perform an expanded analysis of regulatory actions that are likely to have an effect of $100 million or more on the economy, including an assessment of the underlying benefits of the action. The agreement says this expanded economic analysis requirement will take effect on the earlier of 12 months from the date of the agreement or when Treasury obtains sufficient resources to perform this type of analysis.

Senate Leadership

The OIRA review came at the urging of several GOP senators, including subcommittee Chairman James Lankford (Okla.), with concerns that Treasury wouldn’t implement the law as Congress intended.

“This administration reached in and broke it and said ‘we need to fix this.’ It has been a problem for three decades,” Lankford told reporters April 12.

Sen. Rob Portman (R-Ohio), who directed the Office of Management and Budget during President George W. Bush’s administration and is a member of the Finance Committee, said he supports the compromise reached by OMB and Treasury. The deal “walks the fine line” of oversight while still allowing regulations to move quickly.

House Republicans had generally been less supportive of increased OIRA review, two GOP aides said. The 10-day review period for the regulations they care most about—those implementing the 2017 tax law they passed—isn’t likely to cause any of them to vocally oppose the deal, one aide said.

Democrats have pointed out that the uncertainty about how OIRA and Treasury will sort out its review process furthers the case that the tax law rollout has been disorganized.

“There is rampant confusion about how the new tax law works—untested policies, sloppy legislative drafting, and outright mistakes in the law. On top of that, there is a Trump Cabinet turf battle that has been adding to the uncertainty and lengthening the time that small businesses are going to be in the dark about how the tax rules apply to them,” Senate Finance ranking member Ron Wyden (D-Ore.) said.

“They’ve all been mired in this tax code mystery zone while Trump officials go 12 rounds over who’s going to get final say on regulations,” he said.

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